Ukraine, Russia close to finalizing gas transit deal

Ukrainian, Russian and EU officials announced on Dec.
19 that they have agreed in principle on a natural gas transit deal after Jan.
1 following their negotiations in Berlin. “The basic principles of the
contracts have been worked out, which will require approval at the political
level,” said Yuriy Vitrenko, executive director of Naftogaz of Ukraine. “I hope
that we will come to a final agreement in the nearest future,” Russian Energy
Minister Aleksandr Novak commented. Also, the Ukrainian and Russian sides
confirmed that their talks on a gas supply deal will continue on Dec. 20 in
Minsk.

The negotiating parties have reportedly reached a
compromise in one of the most stumbling issues, Gazprom’s USD 3 bln liability
to Naftogaz based on an award by the Stockholm Arbitration Court in 2017-2018.
(Recall, the Russian side insisted that Ukraine refuse
the award as part of a deal). Gazprom does not mind paying, but is not ready to
officially recognize this liability, as reported by the Ukrainian News agency
on Dec. 19 (Putin deemed it during his Dec. 19 press conference to be an award
driven by politics). The possible compromise would involve Gazprom not paying
the award directly, but instead not opposing Naftogaz’s attempts to enforce the
foreclosure of Gazprom’s assets that were frozen in Europe. As a part of such
compromise, Gazprom is also insisting that Naftogaz withdraw a legal claim
worth USD 12 bln, Ukrainian News reported, citing anonymous sources close to
the talks. The Ukrainian side is ready for a compromise in this issue, but much
will depend on the conditions of a new gas deal.

Alexander Paraschiy: This is definitely encouraging news that significantly raises the
chance that Ukraine will resume transiting Russian gas in early 2020, after a
likely halt for some period. Definitely, the ultimate details of a deal will
matter, including the minimum volumes of future gas transit and the time
period. Most likely, the volumes will be significantly lower than what Ukraine
transited in the last ten years  (86 bcm p.a., on average), and the new
deal could be signed for a shorter period than the previous one (10 years). But
in any case, a deal in the next few weeks will be positive for Ukraine’s
economic outlook and energy security in the short term.